Foreigners now holding only 14.4% of Moscow producer (700 words)

Published: 2/1/2001

700 According to the Russian Aerospace Agency, the government plans to increase its role in helicopter producer MVZ (Mil), through the 31% holding in the company - held by the State Property Ministry. Given the current confusion, it is unclear exactly what they will be taking an increased stake in? The producer has reduced its foreign shareholding from 42.44% to 14.4% in recent months. This complies with regulations that stipulate military contracts as being prohibited to any manufacturer with a foreign shareholding exceeding 25%. Originally, the foreign holdings were to be diluted (according to reports in October 2000), by the issuance of stock to the government, in exchange for intellectual property rights on Mil designs, thereby raising the government stake and diluting the foreign interest. According to a release from the Russian Aerospace Agency however, the government is due to increase its ownership of the company further, by contributing the intellectual property rights of Mil designs to the company, in exchange for an unspecified share of the equity after the agreement of the company's debt restructuring. According to Sergey Surov, Deputy Chairman of Interregional Investment Bank (MIB) - the producer's main creditor - the foreign shareholding has been reduced with sales, by the creditors committee, from US conglomerate United Technologies to various Russian companies (including Rosvertol), during the final months of 2000. The sales have also been somewhat more successful than anticipated, given that the original target was to reduce the foreign holding to 25% plus one share. A special shareholders meeting is due to take place in February to consider the proposal for the restructuring debt equity swap. MIB remains a creditor, according to Surov, and keen to resolve the restructuring; having refused payment by the external manager of its debts, with a loan from the state investment fund, Goscinor, at the end of last year. According to Surov, the reinstatement of the former temporary manager Zapolsky by the arbitrage court, over turning the decision of a lesser court in October, has simply served to make the confused situation even worse, particularly as the company is thrown into limbo for the five days required for the order to become effective. The current temporary manager, Bogocharov, is potentially applying to a higher court to have the decision overturned. For Surov, the issue of who is manager is now academic. They simply want a manager who is going to restore the business to health and run it in the “interests of its shareholders”. Although reports have suggested the bank favours that Zapolsky who becomes the sixth appointment to temporary manager (although his fourth time around) since the producer went into bankruptcy in the summer of 1999 with reported debts of $11m. The restructuring plan for the helicopter industry involves the establishing of a joint stock holding company for the helicopter producers, including OAO MVZ (as a designer and producer of Mil helicopters), Rosvertol, KVZ, and Ulan-Ude Aviation Plant. The federal government will acquire 51% of the holding company, which will then acquire holdings in the operating companies through transfer. The size and nature of the transfers remains undisclosed, but judging by the proposal being made, MVZ is likely to be the controlling interest. The proposal on the creation of such a holding company is included in the draft of the Federal Programme for restructuring the defence industry between 2001-2005 and up to 2010. MIB believes that while the state may take a 51% stake, the enterprise will require an external investor, given the state's record to date in producing funding. The creation of such an entity would leave Kamov (spun out of MAPO in early 1999) as the second producer in Russia. It is unclear, as with many of the proposed restructurings within the industry, whether the organizational restructuring will be matched by the physical equivalent. In the case of the MVZ entity, there is considerable overlap in production between Ulan Ude and KVZ, which has led to a number of acrimonious rows in the past over export rights. Kazan is also 38%-owned by Tatarstan, suggesting that the management of the structure may be fairly loose. While clarifying some of the outstanding issues of integration may not entirely resolve them.

Article ID: 2336